”Chattel Paper” Legal Definition In Texas

The Uniform Commercial Code defines "chattel paper" as "a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods." TEX. BUS. & COM. CODE ANN. § 9.105(a)(2) (Vernon Supp. 2000) (text effective until July 1, 2001).

The code provides the following example to illustrate the use of the term "chattel paper."

A dealer sells a tractor to a farmer on conditional sales contract or purchase money security interest.

The conditional sales contract is a "security agreement", the farmer is the "debtor", the dealer is the "secured party" and the tractor is the type of "collateral" defined in Section 9-109 as "equipment".

But now the dealer transfers the contract to his bank, either by outright sale or to secure a loan.

Since the conditional sales contract is a security agreement relating to specific equipment, the conditional sales contract is now the type of collateral called "chattel paper".

In this transaction between the dealer and his bank, the bank is the "secured party", the dealer is the "debtor", and the farmer is the account debtor. TEX. BUS. & COM. CODE ANN. § 9.105 cmt. 4 (Vernon Supp. 2000) (text effective until July 1, 2001).

In Chase Commercial Corporation v. Datapoint Corporation, 774 S.W.2d 359 (Tex. App.-Dallas 1989, no writ) leased computer equipment from Datapoint, and Datapoint assigned the leases to Chase Commercial. Id. at 361.

Chase Commercial argued that chapter nine of the code protected NTD, and did not protect Datapoint. Id. at 363.

Specifically, Chase Commercial contended "that the strictures of chapter 9 concerning a creditor's duty to dispose of the collateral in a reasonable manner simply do not apply to the action between Chase and Datapoint." Id.